ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – OWE THE IRS –LOSE YOUR PASSPORT – THE MATTSON CASE
By Robert S. Schriebman
On December 4, 2015, as part of the Fixing America’s Surface Transportation (FAST) Act, Congress enacted Section 7345 of the Internal Revenue Code, which requires the Internal Revenue Service to notify the State Department of taxpayers certified as owing a seriously delinquent tax debt. The FAST Act generally prohibits the State Department from issuing or renewing a passport to a taxpayer with a seriously delinquent tax debt.
On December 6, 2022, the US Tax Court issued its decision in the case of Eric P. Mattson. (Eric P. Mattson v. Commissioner, TC Memo 2022-118, Dec. 6, 2022.)
In this article, I will discuss the Mattson case and the requirements for certification as a seriously delinquent tax debtor, pursuant to IRC § 7345.
The Case of Mattson
Mattson owed the IRS for the years 2001 through 2008 to the sum of almost $62,000. The IRS notified him that he was considered a seriously delinquent tax debtor and that his matter was being referred to the State Department for purposes of impacting his passport. Under the FAST Act one who is considered to be seriously delinquent has the right to petition the US Tax Court to challenge the certification. Mattson made several arguments before the Court, that were not successful.
Mattson’s federal tax liability is considered a seriously delinquent tax debt if:
- The tax has been assessed;
- The tax liability exceeds $50,000, adjusted annually for inflation. In 2022 that amount rose to $51,000;
- The tax debt is unpaid and legally enforceable; and
- The tax debt is subject to a filed tax lien notice or a completed levy. (See Rev. Proc. 2017-58.)
The Law – IRC § 7345
IRS § 7345(a) provides that if the IRS certifies a taxpayer as a “seriously delinquent tax debt,” that certification shall be transmitted to the Secretary of State for action with respect to denial, revocation, or limitation of the taxpayer’s passport. The IRS is required to also notify the taxpayer upon making that certification.
Section 7345(e) permits a taxpayer, whom the IRS certified as having seriously delinquent tax debt, to petition the US Tax Court to determine whether the certification was erroneous or whether the IRS had failed to reverse the certification. The Tax Court does not have the power to require the State Department to reverse any passport action taken by the State Department as a result of the IRS certification. The Tax Court can only grant one remedy: the Court can issue an order that the IRS “notify the Secretary of State no that such certification is erroneous.” The statute does not authorize the Court to do anything else.
Why Mattson Lost His Case
Mattson failed to convince the Tax Court to order the IRS to reverse the certification based upon four key elements:
- The IRS issued an assessment against Mattson
Most people do not know what the word “assessment” means. An assessment is defined in IRC § 6203 and is the process by which the amount of tax owed to the IRS is recorded on its assessment roll in the Office of the Secretary of the Treasury.
- Mattson met the $51,000 threshold
Mattson owed the IRS almost $62,000. Therefore, the threshold debt was met.
- Mattson had unpaid and legally enforceable IRS liabilities
As soon as a tax debt is recorded on the assessment roll, it becomes unpaid and legally enforceable. A tax lien arises at this point by operation of law.
- The IRS took collection action against Mattson
When the IRS certified Mattson’s debt to the State department, the IRS had already issued a Notice of Federal Tax Lien (NFTL) and a Notice of Levy for the tax years 2001 through 2008.
The IRS can only certify a seriously delinquent tax debtor to the State Department. The IRS has no control over what the State Department will decide to do. The State Department may deny a passport application, revoke an existing passport or place limitations on that passport. However, if a taxpayer timely files a petition for a Collection Due Process (CDP) hearing, that filing either stops the certification process or requires the IRS to notify the State Department to reverse the certification.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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